More folks including both individual adults and families are on their own to provide funding for healthcare. There is a growing trend of being your own freelance business owner, being a contract employee or being employed by a business that does not offer a health insurance benefit. Many people make the mistake of buying price instead of value in a healthcare funding plan. This article provides an overview of options for funding healthcare with both advantages and disadvantages of each strategy.

How Much does Healthcare Cost?

Understanding what healthcare costs is important to deciding the best strategy for funding your own healthcare needs. Buying based only on price and not value (price vs. benefits) is a common and very grave mistake. Some examples of what healthcare can cost will help illuminate the importance of value and risk transfer (insurance) in funding your own healthcare.

Routine Care: Having an ongoing relationship with a medical doctor is important value and can help you avoid much more costly illness and improve your overall health outcome. I am an example of the benefits of routine medical care with the goals of avoiding cardiovascular disease, diabetes and managing my sinus allergies. My recent doctor visit including blood test = $248 Well Baby Check (price from local pediatrician) = $160 Annual Physical = $500? Cost depends on how elaborate a physical you get.

Rx Drug: Prescription drugs are approximately 10% of total healthcare spending [1]. Prescription drugs can be a large component of treating a major or chronic illness. These are drugs that I take with the list prices from my local drug store. OTC Claratin (equivalent house brand) = $10 / month Crestor = $137.99 / month Astelin = $115.99 / month An example of a more expensive medicine that my wife takes regularly for her chronic migraines: Topamax (generic equivalent) = $566.99 / month

Diagnostic Tests: Diagnostic tests are an important part of most disease identification, management and treatment and are a large component of healthcare costs. My recent blood test (three panels) = $152 X-Rays = $100+ Mammogram = $150+ MRI = $1000+; a complex MRI can cost several thousand dollars

Emergency Care: ER Visit = $1000+; this is based on my experience – I have never had an ER visit that was less than a $1000 in billed costs

Hospital Admission About 30% of healthcare costs are for in-patient hospitalization. The average length of a hospital stay is five days [2] with costs highly dependent on treatment. Heart Arrhythmia (irregular heartbeat) – Example from one of my clients = $45,000 including an ER admission and then three days in the hospital

Major Illness: Cancer (Lymphoma) – My brother over two years of treatment = $500,000+; It is hard to tell the actual total but when I called to see if my brother was close to exceeding his $1 million lifetime limit the expectation was at least $500,000 in paid benefits to complete his cancer treatment.

Chronic Illness: A chronic illness is defined by a medical condition lasting a year or more that requires ongoing treatment. Examples are Diabetes, Asthma, hypertension and Depression. Approximately half of all Americans have some kind of chronic aliment [2]. Type 2 Diabetes – Average Annual Cost = $5949 [3] Asthma – Average Annual Cost = $3192 [4]

Put all of this in a gigantic pile and the average cost of healthcare in Texas according to the Texas Department of Insurance in 2006 was $7110 per person. That is $593 per month per person. Admittedly that includes a lot of unhealthy and high healthcare uses but it provides some perspective on what healthcare costs. If you have not had a close relative, family or friend with a serious illness or injury, it is hard to imagine the high cost of healthcare. Value in funding healthcare is more than helping with the cost of routine care. Value to me means grappling with the risk of a major illness or injury.

Choices for Funding Healthcare

Cash – Just buy it when you need it and pay what it costs out-of-pocket. The big disadvantage of the “Cash” or what I call the “If we are Lucky Plan…” is that you have no protection of the risk for a major illness or injury. We have over 24% of Texans uninsured for healthcare with a fourth of the uninsured on the “Cash” plan by choice — about 6% of the entire population.

Advantages:

No Monthly Premium / Fees
Ask for Cash discount from healthcare providers
Available to all

Disadvantages:

No financial protection from the risk of a major illness or injury
Difficulty in accessing cares without insurance; some healthcare providers may require advance payment
You pay the whole bill for medical treatment

Discount Health Card – Buy it when you need it and pay less with an “Affordable Healthcare” discount card. Essentially, you access contracted network rates without a Health Insurance policy for an annual or monthly fee. I look at this plan as a variation of the “Cash” plan since you have no protection of the risk for a major illness or injury. “The FTC and many states have found that although some medical discount plans provide legitimate discounts that benefit their members, many take consumers’ money and offer very little in return.” – Federal Trade Commission

Advantages:

Low Monthly Fee
Discounted care from some healthcare providers
Normally available to all applicants

Disadvantages:

No financial protection from the risk of a major illness or injury
Difficulty in accessing care without insurance; Some healthcare providers may require advance payment
After any offered discount, you still pay the whole bill for medical treatment

Limited Benefit Plan – Pay a monthly premium for a defined-benefit insurance policy. Also often marketed as “Affordable Healthcare,” these mini-med health insurance plans typically offer a set payment amount for a specific healthcare treatment and a maximum benefit limit under $100,000. These plans don’t meet the “my brother test” – would this type of plan coped with the healthcare costs of my brother’s lymphoma? – No, so I won’t sell them. The healthcare discount cards and limited benefit plans are aggressively marketed on the internet. Just Google “affordable healthcare” or “low-cost health insurance” and you will see bunches. There just is no free lunch in health insurance. If the plan is cheap, then the benefits are limited.